G.R. Nos.

L-49839-46 April 26, 1991

JOSE B. L. REYES and EDMUNDO A. REYES

PARAS, J.

FACTS:
● Petitioners are owners of parcels of land situated in the city of Maynila which are leased
and entirely occupied as dwelling sites by tenants. The monthly rental does not exceed
300 pesos.
● RA No. 6359 was then enacted. It prohibited the increase in monthly rentals of dwelling
units or of lands on which another's dwelling is located, where such rentals do not
exceed three hundred pesos (P300.00) a month but allowing an increase in rent by not
more than 10% thereafter, and the ejectment of lessees upon the expiration of the usual
legal period of lease.
● PD No. 20 amended R.A. No. 6359 by making absolute the prohibition to increase
monthly rentals below P300.00 and by indefinitely suspending Article 1673 (1) of the
Civil Code, excepting leases with a definite period.
● Because of the reclassification and reassessment of subject properties conducted by the
City Assessor of Manila, the said properties of the petitioners entailed an increase in the
corresponding tax rates.
● Petitioners then filed a Memorandum of Disagreement with the Board of Tax
Assessment Appeals (BTAA), alleging that the reassessments made were "excessive,
unwarranted, inequitable, confiscatory and unconstitutional" considering that the taxes
imposed upon them greatly exceeded the annual income derived from their properties.
● They argued that the income approach should have been used in determining the land
values instead of the comparable sales approach which the City Assessor adopted.
● BTAA considered the assessment valid.
● Petitioner then appealed to the Central Board of Assessment Appeals (CBAA).
● CBAA affirmed the valuation and assessment of some of the lots, and allowed the 20%
reduction in the respective market values and applying therein the assessment level of
30% to arrive at the corresponding assessed value for other lots.
● Petitioner’s MR was subsequently denied. Hence, this petition.

ISSUE: WON CBAA ERRED IN ADOPTING THE "COMPARABLE SALES APPROACH"

RULING: The petition is impressed with merit.

The crux of the controversy is in the method used in tax assessment of the properties in
question. Petitioners maintain that the "Income Approach" method would have been more
realistic for in disregarding the effect of the restrictions imposed by P.D. 20 on the market value
of the properties affected, respondent Assessor of the City of Manila unlawfully and unjustifiably
set increased new assessed values at levels so high and successive that the resulting annual
real estate taxes would admittedly exceed the sum total of the yearly rentals paid or payable by
the dweller tenants under P.D. 20. Hence, petitioners protested against the levels of the values
assigned to their properties as revised and increased on the ground that they were arbitrarily
excessive, unwarranted, inequitable, confiscatory and unconstitutional (Rollo, p. 10-A).

On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision
that the income approach is used in determining land values in some vicinities, it maintains that
when income is affected by some sort of price control, the same is rejected in the consideration
and study of land values as in the case of properties affected by the Rent Control Law for they
do not project the true market value in the open market (Rollo, p. 21). Thus, respondents opted
instead for the "Comparable Sales Approach" on the ground that the value estimate of the
properties predicated upon prices paid in actual, market transactions would be a uniform and a
more credible standards to use especially in case of mass appraisal of properties (Ibid.).
Otherwise stated, public respondents would have this Court completely ignore the effects of the
restrictions of P.D. No. 20 on the market value of properties within its coverage. In any event, it
is unquestionable that both the "Comparable Sales Approach" and the "Income Approach" are
generally acceptable methods of appraisal for taxation purposes (The Law on Transfer and
Business Taxation by Hector S. De Leon, 1988 Edition). However, it is conceded that the
propriety of one as against the other would of course depend on several factors. Hence, as
early as 1923 in the case of Army & Navy Club, Manila v. Wenceslao Trinidad, G.R. No. 19297
(44 Phil. 383), it has been stressed that the assessors, in finding the value of the property, have
to consider all the circumstances and elements of value and must exercise a prudent discretion
in reaching conclusions.

Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not
only be uniform, but must also be equitable and progressive.

Uniformity has been defined as that principle by which all taxable articles or kinds of property of
the same class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).

Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects
of taxation required in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221,
Second Edition). Thus, the need to examine closely and determine the specific mandate of the
Constitution.

Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is
progressive when its rate goes up depending on the resources of the person affected (Ibid.).

The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of
government. But for all its plenitude the power to tax is not unconfined as there are restrictions.
Adversely effecting as it does property rights, both the due process and equal protection
clauses of the Constitution may properly be invoked to invalidate in appropriate cases a revenue
measure. If it were otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall
that "the power to tax involves the power to destroy." The web or unreality spun from Marshall's
famous dictum was brushed away by one stroke of Mr. Justice Holmes pen, thus: "The power to
tax is not the power to destroy while this Court sits. So it is in the Philippines " (Sison, Jr. v.
Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA
439 [1985]).

In the same vein, the due process clause may be invoked where a taxing statute is so arbitrary
that it finds no support in the Constitution. An obvious example is where it can be shown to
amount to confiscation of property. That would be a clear abuse of power (Sison v. Ancheta,
supra).

The taxing power has the authority to make a reasonable and natural classification for purposes
of taxation but the government's act must not be prompted by a spirit of hostility, or at the very
least discrimination that finds no support in reason. It suffices then that the laws operate equally
and uniformly on all persons under similar circumstances or that all persons must be treated in
the same manner, the conditions not being different both in the privileges conferred and the
liabilities imposed (Ibid., p. 662).

Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first
Fundamental Principle to guide the appraisal and assessment of real property for taxation
purposes is that the property must be "appraised at its current and fair market value."

By no strength of the imagination can the market value of properties covered by P.D. No. 20 be
equated with the market value of properties not so covered. The former has naturally a much
lesser market value in view of the rental restrictions.

Ironically, in the case at bar, not even the factors determinant of the assessed value of subject
properties under the "comparable sales approach" were presented by the public respondents,
namely: (1) that the sale must represent a bonafide arm's length transaction between a willing
seller and a willing buyer and (2) the property must be comparable property (Rollo, p. 27).
Nothing can justify or support their view as it is of judicial notice that for properties covered by
P.D. 20 especially during the time in question, there were hardly any willing buyers. As a
general rule, there were no takers so that there can be no reasonable basis for the conclusion
that these properties were comparable with other residential properties not burdened by P.D.
20. Neither can the given circumstances be nonchalantly dismissed by public respondents as
imposed under distressed conditions clearly implying that the same were merely temporary in
character. At this point in time, the falsity of such premises cannot be more convincingly
demonstrated by the fact that the law has existed for around twenty (20) years with no end to it
in sight.

Verily, Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. However, such collection should be made in accordance with law as
any arbitrariness will negate the very reason for government itself It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real
purpose of taxations, which is the promotion of the common good, may be achieved
(Commissioner of Internal Revenue v. Algue Inc., et al., 158 SCRA 9 [1988]). Consequently, it
stands to reason that petitioners who are burdened by the government by its Rental Freezing
Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be
penalized by the same government by the imposition of excessive taxes petitioners can ill afford
and eventually result in the forfeiture of their properties.

By the public respondents' own computation the assessment by income approach would
amount to only P10.00 per sq. meter at the time in question.

G.R. Nos. 118498 & 124377 October 12, 1999

FILIPINAS SYNTHETIC FIBER CORPORATION, petitioner,

PURISIMA, J.:

Facts:
● Petitioner, a domestic corporation received a letter of demand from CIR assessing it with
deficiency withholding tax at source with interest and compromise penalties for alleged
late payment of withholding taxes due on interest loans, royalties and guarantee fees
paid by the petitioner to non-resident corporations.
● Petitioner then filed a protest.
● Respondent denied the protest on the ground that “for Philippine internal revenue tax
purposes, the liability to withhold and pay income tax withheld at source from certain
payments due to a foreign corporation is at the time of accrual and not at the time of
actual payment or remittance thereof" and "the withholding agent/corporation is obliged
to remit the tax to the government since it already and properly belongs to the
government, citing two BIR Rulings and a CTA decision.
● Petition then filed a petition for review with the CTA. CTA rendered a judgement ordering
petitioner to pay the respondent the deficiency withholding tax plus surcharges and
annual interest. Petitioner’s MR was likewise denied.
● Petitioner appealed to the CA. CA affirmed in toto the appealed decision.

ISSUE: Whether the liability to withhold tax at source on income payments to non-resident
foreign corporations arises upon remittance of the amounts due to the foreign creditors or upon
accrual thereof.
RULING:

No. Under the accrual basis method of accounting, income is reportable when all the events
have occurred that fix the taxpayer's right to receive the income, and the amount can be
determined with reasonable accuracy. Thus, it is the right to receive income, and not the actual
receipt, that determines when to include the amount in gross income." Gleanable from this
notion are the following requisites of accrual method of accounting, to wit: "(1) that the right to
receive the amount must be valid, unconditional and enforceable, i.e., not contingent upon
future time; (2) the amount must be reasonably susceptible of accurate estimate; and (3) there
must be a reasonable expectation that the amount will be paid in due course."

In the case at bar, the Court concurred in the finding by the Court of Appeals that there was a
definite liability, a clear and imminent certainty that at the maturity of the loan contracts, the
foreign corporation was going to earn income in an ascertained amount, so much so that
petitioner already deducted as business expense the said amount as interests due to the foreign
corporation. This is allowed under the law, petitioner having adopted the "accrual method" of
accounting in reporting its incomes." Petitioner cannot now claim that there is no duty to
withhold and remit income taxes as yet because the loan contract was not yet due and
demandable. Having "written-off" the amounts as business expense in its books, it had taken
advantage of the benefit provided in the law allowing for deductions from gross income.
Moreover, it had represented to the BIR that the amounts so deducted were incurred as a
business expense in the form of interest and royalties paid to the foreign corporations.

RULING : Decisions of the Court of Appeals in CA GR. SP Nos. 32922 and 32022 are hereby
AFFIRMED in toto.

Notes:

Sec. 53 of the National Internal Revenue Code, in force at that time (1975), reads:

Withholding Tax at source . . .

xxx xxx xxx

(b) Non-resident aliens and foreign corporations — Every individual, corporation, partnership, or
association, in whatever capacity acting, including a lessee or mortgagor of real or personal
property, trustee acting in any trust capacity, executor, administrator, receiver, conservator,
fiduciary, employer, and every officer or employee of the Government of the Republic of the
Philippines having the control, receipt, custody, disposal, or payment of interest, dividends,
rents, royalties, salaries, wages, premiums, annuities, compensation, remunerations,
emoluments, or other fixed or determinable annual, periodical, or casual gains, profits, and
income, and capital gains, of any non-resident alien not engaged in trade or business within the
Philippines, shall (except in the case provided in sub-section (a) (1) of this Section) deduct and
withhold from the annual, periodical, or casual gains, profits, and income, and capital gains, a
tax equal to 30 per cent thereof.

xxx xxx xxx

(2) Non-resident foreign corporations — In the case of foreign corporations subject to tax under
this Title, not engaged in trade or business within the Philippines, there shall be deducted and
withheld at the source in the same manner and upon the same items as is provided in
subsection (b) (1) of this section, as well as on remunerations for technical services or
otherwise, a tax equal to thirty-five (35) per cent thereof. This tax shall be returned and paid in
and subject to the same conditions as provided in Section 54.

On the other hand, Section 54 of the same law, provides:

Returns and payments of taxes withheld at source —

(a) Quarterly return and payment of taxes withheld — Taxes deducted and withheld under
Section 53 shall be covered by a return and paid to the Commissioner of Internal Revenue or
his collection agent in the province, city, or municipality where the withholding agent has his
legal residence or principal place of business, or where the withholding agent is a corporation,
where the principal office is located. The taxes deducted and withheld by the withholding agent
shall be held as a special fund in trust for the Government until paid to the collecting officers.
The Commissioner of Internal Revenue may, with the approval of the Secretary of Finance,
require these withholding agents to pay or deposit the taxes deducted and withheld at more
frequent intervals when necessary to protect the interest of the Government. The return shall be
filed and the payment made within 25 days from the close of each calendar quarter . . .